The Application of Rule 46A in relation to the Execution of Residential Property owned by Juristic Persons

2022, Articles, Contract Law, COVID-19, Housing and Construction, News, Property Law

Article written by Katleho Selepe (Candidate Attorney)
Checked and released by Maike Gohl (Partner)
15 July 2022

IINTRODUCTION

The laws of the Republic of South Africa demand that sufficient protection is afforded to judgment debtors who are at the risk of having their residential property executed on. Rule 46A, as amended, was promulgated to offer such protection by requiring judicial oversight over such proceedings. In the matters of Solomon Segalo v Joachim Hendrik Botha N.O and Others Case no. 11582/2020 and Joachim Hendrik Botha N.O and Another v Nokuphiwa Rita Segalo Case no. 44572/2019, the court was required to decide if judicial oversight applies in all instances where residential property of the judgement debtor is to be executed on.

FACTUAL BACKGROUND

The above are two matters which arise from the same set of facts, and the court found it convenient to deal with both matters concurrently.

Mr. Segalo, the Applicant in the first matter was the sole director of Blue Flame Advertising and Marketing (Pty) Ltd (herein “Blue Flame”), a company which was now undergoing liquidation proceedings. Mr. Segalo and his family used a property owned by Blue Flame as a residential family home. In his application he challenges the constitutionality of Section 386 of the Companies Act 61 of 1973 (“the Companies Act”) in so far as it allows for the execution on residential property used by a juristic person without judicial oversight1.

The Fourth Respondent is FirstRand Bank Limited (herein “FNB”), which held a bond over the property in question, and the only secured creditor in the winding up of Blue Flame. The company was provisionally liquidated on 13 August 2018, and finally liquidated on 5 December 2018.

During a creditor’s meeting, the joint liquidators were authorised to sell the company’s assets, including the property in question. Accordingly, the liquidators approached the Court for an order extending their powers in terms of Section 386 of the Companies Act. Thereafter an eviction application in terms of the Prevention of Illegal Evictions from and Unlawful Occupation of Land Act (herein “the PIE Act”) was brought, and an order authorizing the eviction was granted on the 22nd of October 2019. Mr. Segola agreed to vacate the property by the 14th of February 2020, however, Mrs. Segola failed to vacate the property, and a notice in terms of Section 4 (2) of the PIE Act was delivered upon her and her employees. She then delivered a notice in terms of Rule 16A (a notice to raise a constitutional issue) including a counter application to the eviction application. (This is the second matter referred to above). It should be noted that the eviction application is not the application in question at present, it is only mentioned herein for information purposes of the history of the matter. Mr. Segola in the present application seeks to intervene in the eviction application against his wife, and both Mr. and Mrs. Segalo seek the same relief in their respective applications as sought in Mr Segalo in initial application, i.e. an order declaring Section 386 of the Companies Act unconstitutional.

It is imperative to note that no payments toward the bond or municipal rates had been made by either Mr. or Mrs. Segola since the provisional liquidation of Blue Flame. Mr Segalo only made an offer to pay a monthly amount of between R80 000.00 (Eighty Thousand Rand) and R100 000.00 (One Hundred Thousand Rand) as rental to the liquidators in his replying affidavit.

ISSUES

In both matters, the pertinent issue being raised by Mr. and Mrs. Segola concern the constitutional validity of Section 386 of the Companies Act, their stance is based on two arguments. In the first instance, the pair argue that this provision, in so far as it fails to provide judicial oversight over the sale of residential immovable property owned by liquidated juristic entities, violated the entity’s constitutional rights to access to courts. In the second instance, the pair argues that the above-mentioned provision violated the entity’s right to adequate housing, both rights being provided for by the Constitution of the Republic of South Africa, 1996, more specifically in Sections 34 and 26.

COURT’S DECISION

Matojane J, dismissed these arguments and held that Section 386 of the Act is indeed constitutionally valid. In coming to its decision, the court considered two arguments.

COURT’S RATIO

As to the first contention, the court held as follows: The pair failed to show how the legislative provisions in questions violated their right to access to courts. Further, the PIE Act provides them, as occupants of the property, judicial protection as it requires evictions to be just and equitable considering all the prevailing circumstances.

In relation to the second contention, the court held, borrowing from the Constitutional Court decisions in Jaftha2 and Gundwana3 , that judicial oversight is necessary where the property being executed is the residence of and is owned by the judgment debtor. The Supreme Court of Appeal in Saunderson4 further emphasized that the question of adequate housing is dependent on the prevailing facts, it is not the intention of the Constitution to include in this definition luxury homes. The judicial oversight requirement is there to afford protection to individuals who do not have the means to properly exercise their legal rights.

The culmination of the above decisions resulted in the amendment of Rule 46A of the Uniform Rules of Court, thus ensuring that judicial oversight is always exercised where the primary residence of a judgment debtor is subject to execution. This provision, however, only applies to natural persons and not juristic ones.

This was amplified by the High Court Decisions in Mokebe5 and Fraser6 where it was held that judicial oversight is a requirement seeking to ensure that the circumstances of the indigent judgment debtor are taken into consideration, together with the potential harm to be suffered due to the execution of their primary residence. Further, this provision does not apply where the property is owned by a juristic entity, even where the property is the primary residence of the director, member or shareholder of such an entity.

Finally, the court held that, Blue Flame is not a bearer of the right to access to adequate housing as a juristic person, or the right to human dignity, and the contention of a violation of this right is without merit and falls to be dismissed.

CONCLUSION

Rule 46A only applies in instances where the property to be executed on, is the primary residential property used and owned by a natural person, and this seeks a judicial enquiry into whether the judgment debtor is not adequately equipped to exercise legal protection afforded to him or her without judicial oversight, considering the relevant circumstances and potential harm to be suffered by the judgment debtor.

A juristic person is not a holder of the right to access to adequate housing and human dignity, which are important consideration in the judicial enquiry, and as such Rule 46A does not apply to residential property owned by a juristic person.

VALUE

Where a residential property owned by a juristic person is executed, no judicial oversight in terms of Rule 46A is required.

[1] Section 386 (4)(h) of the Companies Act.
[2] Jaftha v Schoeman and Others; Van Rooyen v Stottz and Others 2005 (2) SA 140 (CC).
[3] Gundwana v Sleko Development and Others 2011 (3) SA 608 (CC).
[4] Standard Bank of South Africa v Saunderson and Others 2006 (2) SA 264 (SCA).
[5] Absa Bank Ltd v Mokebe and Related Cases 2018 (6) SA 492 (GJ).
[6] Investec Bank Ltd v Fraser N.O and Others 2020 (6) SA 211 (GJ).

Maike Gohl
PARTNER
Katleho Selepe
CANDIDATE ATTORNEY
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